Beware Hidden Dangers of Attorneys’ Fee Provisions

First, I believe the trial court got it mostly right. But the appeals court had the last word. The case serves as a reminder that attorneys’ fee provisions at times do not always serve the greater purpose of balancing the stakes in litigation.

Second, I am a fan of prevailing party attorneys’ fee clauses, and believe, on balance, that those provisions foster resolution of disputes and discourage unnecessary litigation. That being said, the Massachusetts Appeals Court recently issued a decision that advances the letter of the law above considerations of equity.

The case concerns a GC and paving sub dispute. The sub wanted to include an escalation clause for asphalt and quoted what may have been a high charge for grader rental. The GC persistently objected to both – there were at least two marked-up purchase orders that were ignored and re-written – and the purchase order eventually signed by both parties had neither term. At project end the sub billed $89,989.90, of which $11,400 was for grader rental and $10,064 for “liquid asphalt escalation.” The GC paid $68,525 not in dispute and “indicated a willingness to pay a reasonable fee for the grader rental.” The sub sued for the balance and made a claim under the Massachusetts payment bond statute, which provides for recovery of attorneys’ fees.

The trial court held that the sub had a claim in quantum meruit of $7,125 for the grader rental, but no right to escalation charges. The trial court also held that the sub’s actions in pursuing its claim amounted to a violation of the unfair trade practice statute, and awarded attorneys’ fees to the GC, finding that the sub had failed to act in an equitable manner. Given the other findings, that did not sound like an unreasonable outcome.

But the Appeals Court held that pursuit of a statutory payment bond claim (a) was not an unfair and deceptive act (I agree with this part), and (b) meant that the sub was entitled to recover its attorneys’ fees under the payment bond statute. So the award of $7,125 in favor of the sub was upheld, and the GC’s award under the unfair trade practice law was reversed. The case has been remanded to the Superior Court for determination of the “reasonable attorneys’ fees and costs” due to the sub under the payment bond law. The case is Aggregate Industries – Northeast Region, Inc. v. Hugo Key and Sons, Inc. (Sept. 1, 2016). If this case really could have been settled for short money, as suggested in the appellate decision, then the strict application of the statutory attorneys’ fee clause served to reward unreasonable behavior in this instance.

The payment bond law serves an important function for the benefit of those lower on the food chain who often have to fight for their money. The underlying principle and the philosophy are appropriate, and the attorneys’ fee clause helps to level the playing field. The lesson here is that a statutory attorneys’ fee clause can be a formidable weapon, even when it is wielded in an inequitable manner, and in (hopefully rare) instances may reward an unreasonable party.